CAPITAL STRUCTURE

1.0

INTRODUCTION
The literature on determinants of capital structure is well known of the existence

of three theories that are trade off, pecking order and free cash flow (managerial agency costs). Each theory presents a different explanation of corporate financing. The trade off theory is concerned with the trade off between debt tax shields or tax saving, and bankruptcy costs, according to which an optimal capital structure is assumed to exist. The pecking order theory assumes hierarchal financing decisions where firms depend first on internal sources of financing and, if these are less than the investment requirements, the firm seeks external financing from debt as a second source, then equity as the last resort. The free cash flow theory assumes that debt presents fixed obligations such as debt interests and principals to pay, that have to be met by the firm. These obligations are assumed to take over the firm's free cash flow (if exists), therefore prevents managers from over consuming the firm's financial resources.

It was recognized that the three theories are "conditional" in a sense that each works out under its own assumptions and propositions (Myers, 2001). That is, none of the three theories can give a complete picture of the practice of capital structure. This means that firms can pursue capital structure strategies that are conditional as well. That means that when the business conditions change, the financing decisions and strategies may change, moving from one theory to another. This is the main reason that the literature does not include one theory or one explanation on the determinants of capital structure. In fact, an interrelationship can be observed between and among the three theories of capital structure.

1

CAPITAL STRUCTURE

For example, the trade off theory assumes a higher use of debt as long as the debt is associated with positive tax shields and less bankruptcy costs. This does not mean that the firm can reach the maximum debt ratio if, under the assumptions of the pecking order theory, the firm is profitable enough to replace debt with internal financing using the accumulated retained earnings which is can be considered as a part of an equity financing. According to the free cash flow theory, it is affected by the severity of the agency costs associated with debt or equity financing. In fact, the agency theory presents another explanation of debt financing. That is, as long as the agency problem arises from the presence of information asymmetry, Ross (1977), Myers and Majluf (1984) and John (1987) have shown that under asymmetric information, firms may prefer debt to equity financing. Therefore, the interrelationships between and among the three theories of capital structure call for further examination.

It was also found that studies on the determinants of capital structure include selected determinants in a regression equation. This is what Fama and French (2002) referred to as the two theories of capital structure that are trade off and pecking order have share many common predictions about the determinants of leverage. In this research, the study had used leverage (total debt to total asset) as dependent variable and tangibility, size, profitability, growth, volatility and non debt tax shields as independent variables. However, Myers (2001) had stated that each theory works out under its own assumptions. Thus, for this study, the explanatory power and significance of each theory that are represented by independent variables will show the extent of these variables can explain the leverage.

2

CAPITAL STRUCTURE

1.1

PROBLEM STATEMENT
Over the years numerous studies on capital structure theory have appeared.

Modigliani and Miller (1958) were the first who theorized the issue by illustrate that the valuation of a firm will be independent from its financial structure under certain key assumptions. Internal and external funds may be regarded as perfect substitutes in a world where capital markets function perfectly, where there are no transaction or bankruptcy costs and the firm cannot increase its value by changing its leverage.

However, based on the previous research made by Myers (2001), he stated that each theory applied should be based on some certain circumstances. Due to that, the theories are not designed to be general. They are conditional theories of capital structure. Each emphasizes certain costs and benefits of alternative financing strategies. Because the theories are not general, testing them on a broad, heterogeneous sample of firms can be uninformative.

This study comprises of certain related questions to be known: i) To what extent the three theories can give impact to the capital structure decision on the firm’s leverage. Besides that, it also to examine which factors is reliably important for predicting Malaysian firms.

3

CAPITAL STRUCTURE

1.2

OBJECTIVE OF THE STUDY
The basic objective of any corporate finance study of capital structure is to

identify factors explaining the firm’s decision with respect to its financial leverage. Starting with Miller and Modigliani (1958), the literature on capital structure has been expanded by many theoretical and empirical contributions and due to that, much emphasis has been placed on releasing the assumptions made by MM.

Thus, this study had followed another approach which is to examine each theory independently. The argument here follows what is stated by Myers (2001) that each theory works out under its own assumptions. This requires an examination of each theory independently to avoid the highly likely overlap between results. Generally, the explanatory power and significance of each theory represented by an independent regression equation will show the extent to which the explanatory variables of each theory explain variations in corporate leverage.

Therefore, the objective of this paper is to examine the extent to which capital structure decisions are affected by the three common theories that are trade off, pecking order and free cash flow. Besides that, it also to explore whether the main theories of firm financing can explain the capital structure of these firms. The leverage ratio is used as a proxy for firm’s capital structure. The type of industry especially, the firm specific characteristics is used as a control variable that may have effects on changes of capital structure.

4

CAPITAL STRUCTURE

2.0
1)

LITERATURE REVIEW
PROFITABILITY

One of the main theoretical controversies is the relationship between leverage and profitability of the firm. Profitability is a measure of earning power of a firm. The earning power of a firm is the basic concern of its shareholders. Based on the previous research in the agency models of Jensen and Meckling (1976), Easterbrook (1984) and Jensen (1986), higher leverage helps to control agency problem by forcing managers to pay out more of the firm’s excess cash. So, the strong commitment to pay out a larger fraction of their pre interest earnings to debt payments suggests a positive relationship between book leverage and profitability. This result is also consistent with the signaling hypothesis by Ross (1977), where higher levels of debt can be used by managers to signal an optimistic future for the firm.

However, the sharp contrast results in the pecking order model, when higher earnings should result in less book leverage. This is when firms prefer raising capital first from retained earnings, second from debt and third from issuing new equity. This is due to the cost associated with new equity issues in the presence of information asymmetries. Accordingly, the study made by Fama and French (2000), the pecking order model predicts a negative relationship between book leverage and profitability. Besides that, Fama and French also arise an important question is whether these predictions for book leverage carry over to market leverage. Due to that, this theory predicts that firms with a lot of profits and few investments have little debt. Since the market value increases with

5

CAPITAL STRUCTURE

profitability, the negative relationship between book leverage and profitability also holds for market leverage.

Moreover, a study made by Rajan and Zingales (1995), under the same theory, reported that they found a negative relationship between leverage and profitability. However, another study made by Jensen, Solberg and Zorn (1992), had found a contrast result when under the trade off theory it have a positive relationships.

Besides that, the study made by Wolfgang Drobetz and Roger Fix (2003) documented that profitability is negatively correlated with leverage, both for book and market leverage. Thus, result had reliably supports the predictions of the pecking order theory. In addition, to the statistical significance, the economic significance of profitability on leverage is also noteworthy. Due to that, this finding is consistent with the research made by Rataporn Deesomsak et. al (2004). Moreover, based on the study made by Murray Z. Frank and Vidhan K. Goyal (2004) had found that firms that have more profits tend to have less leverage.

6

CAPITAL STRUCTURE

2)

GROWTH

The empirical evidence regarding the relationship between leverage and growth opportunities is rather mixed. Based on the previous research made by Titman and Wessels (1988) had found a negative relationship but Kester (1986) had a contrast result when does not find any support for the predicted negative relationship between growth opportunities and gearing.

Furthermore, based on the previous research made Rajan and Zingales (1995) also uncovered evidence of negative correlations between market to book and gearing for all G-7 countries. Thus, Rajan and Zingales had reported a positive relationship between leverage and growth.

Moreover, the result is consistent with the theoretical predictions of Jensen and Mekling (1976) based on agency theory and the work of Myers (1977), who argues that, due to information asymmetric, companies with high gearing, would have a tendency to pass up positive net present value investment opportunities (also known as growth options). Myers therefore argues that companies with large amounts of investments opportunities would tend to have low gearing ratios.

Besides that, another study made by Jensen’s (1986) under the free cash flow theory which predicts that firms with more investment opportunities have less need for the disciplining effect of debt payments to control free cash flows.

7

CAPITAL STRUCTURE

In addition, based on the study by Fama and French (2000), had explained how the predictions for book leverage carry over to market leverage. According to the trade off theory, it predicts a negative relationship between leverage and investment opportunities. Since the market value grows at least in proportion with investment outlays, the relation between growth opportunities and market leverage is negative and also supported by Rataporn Deesomsak et. al (2004).

According to Wolfgang Drobetz and Roger Fix (2003), they state that among all proxies variables, they found the strongest and most reliable relationship between investment opportunities and leverage. Specifically, companies with high market to book ratios have significantly lower leverage than companies with low market to book ratio. Thus, this result is consistent with both the trade off theory and the extended version of the pecking order theory.

Moreover, from prior research made by Chingfu Chang et. al (2008), they found that growth has a negative effect on leverage and this result is consistent with Booth et. al (2001). This judgment is also consistent with Murray Z. Frank and Vidhan K. Goyal (2004) in their research found that firms which have a high market to book ratio tend to have low levels of leverage.

8

CAPITAL STRUCTURE

3)

SIZE

The effect of size on leverage is ambiguous. According to Warner (1977) and Ang, Chua and McConnel (1982) indicate that bankruptcy costs are relatively higher for smaller firms. This judgment is also supported by Titman and Wessels (1988) when they argue that larger firms tend to be more diversified and fail less often.

On the other hands, under the trade off theory, it predicts an inverse relationship between size and the probability of bankruptcy. Due to that, it showed a positive relationship between size and leverage and this judgment is also supported by Rataporn Deesomsak (2004). If diversification goes along with more stable cash flows, this prediction is also consistent with the free cash flow theory that are studied by Jensen (1986) and Easterbrook (1986). Thus, the result showed that size has a positive impact on the supply of debt (leverage). However, under the pecking order theory of the capital structure, it predicts a negative relationship between leverage and size, with larger firms exhibiting increasing preference for equity relative to debt.

Furthermore, in the research made by Rajan and Zingales (1995), indicate that including size in their cross sectional analysis, they found that the effect of size on equilibrium leverage is more ambiguous. Thus, larger firms tend to be more diversified and because of that, size may then be inversely related to the probability of bankruptcy.

However study made by Wolfgang Drobetz and Roger Fix (2003) had found a contrast results with the Rajan and Zingales (1995), when size is positively related to leverage by indicating that size is a proxy for a low probability of default. However, the estimated 9

CAPITAL STRUCTURE

coefficients on size are generally not significant. Again this result supports the trade off theory, suggesting that large firms exhibit lower probability of default while small firms wary of debt. This judgment is also supported by Bouallegui (2004) when found that large firms tend to use more debt than smaller firms. Consistent with this result, Murray Z. Frank and Vidhan K. Goyal (2004) also indicate that larger firms tend to have high leverage.

10

CAPITAL STRUCTURE

4) TANGIBILITY Tangibility is defined as the ratio of tangible (fixed) assets to total assets. Harris and Raviv (1990) predicts that firm with higher liquidation value will have more debt. Thus, firms with more tangible assets usually have a higher liquidation value. This judgment is also supported by Bouallegui (2004) which showed that leverage is also closely related to tangibility of assets.

On the other hand, based on the previous research by Titman and Wessels (1988), Rajan and Zingales (1995) and Fama and French (2000) argue that the ratio of fixed to total assets (tangibility) should be an important factor for leverage. The tangibility of assets represents the effect of the collateral value of assets of the firm’s gearing level. As such, firm’s with a higher proportion of tangible assets are more likely to be in a mature industry thus less risky, which affords higher financial leverage.

Furthermore, based on the study by Galai Masulis (1976), Jensen and Meckling (1976) and Myers (1977) argue stockholders of levered firms are prone to over invest, which gives rise to the classical shareholder and bondholder conflict. However, if debt can be secured against assets, the borrower is restricted to using debt funds for specific projects. Creditors have an improved guarantee of repayment and the recovery rate is higher such as assets retain more value in liquidation. Without collateralized assets, such as a guarantee does not exist, for example the debt capacity should increase with the proportion of tangible assets on the balance sheet. Hence, under the trade off theory, it

11

CAPITAL STRUCTURE

predicts a positive relationship between measures of leverage and the proportion of tangible asstes.

However study made by Grossman and Hart (1982) had found a contrast result with the previous study when they are argue that the agency costs of managers consuming more than the optimal level of perquisites is higher for firms with lower levels of assets that can be used as a collateral. Managers of highly levered firms will be less able to consume excessive perquisites, since bondholders more closely monitor such firms. The monitoring costs of this agency relationship are higher for firms with less collateralizable assets. Therefore, firms with less collateralizable assets might voluntarily choose higher debt levels to limit consumption of perquisites. Thus, this agency model predicts a negative relationship between tangibility of assets and leverage.

In addition, according to Wolfgang Drobetz and Roger Fix (2003) has mentioned that tangibility is almost always positively correlated with leverage. The result showed that regression coefficient on tangibility is significant in about half of all regression. This had support the prediction of the trade off theory that the debt capacity increases with the proportion of tangible assets on the balance sheet. This can be quantified by the size of the changes in leverage ratios that are associated with changes in the ratio of fixed to total assets. This finding is consistent with more recent research by Rataporn Deesomsak (2004), where under agency theory the result showed a positive relationship between tangibility of assets and leverage when anticipated.

12

CAPITAL STRUCTURE

5)

NON DEBT TAX SHIELD

Firms will exploit the tax deductability of interest to reduce their tax bill. Therefore, firms with other tax shields, such as depreciation deductions, will have less need to exploit the debt tax shield. According to Ross (1985) argues that if a firm in this position issues excessive debt, it may become ‘tax exhausted’ in the sense that it is unable to use all its potential tax shields. Thus, the incentive to use debt financing diminishes as non debt tax shields increase. Accordingly, in the framework of the trade off theory, one hypothesizes a negative relationship between leverage and non debt tax shields.

However, Scott and Moore (1977) had found a contrast result when argue that firms with substantial non debt tax shield should also have considerable collateral assets which can be used to secure debt. It has been argued above that secured debt is less risky than unsecured debt. Therefore, from a theoretical point it showed a positive relationship between leverage and non debt shield.

Furthermore, another study made by Shenoy and Koch (1996) had find a negative relationship between leverage and non debt tax shield. Consistent with this result, the judgment is also supported by Rataporn Deesomsak (2004) when they also found an inversely related to leverage. In addition, study made by Bouallegui (2004) had also stated that leverage is closely related to the ratio of non debt shield. However, Gardner and Trcinka (1992) had got in contrast, when they found a positive one.

13

CAPITAL STRUCTURE

Besides that, another study made by Wolfgang Drobetz and Roger Fix (2003) had mentioned that the non debt tax shield are generally insignificant. Only in one regression specification the estimated coefficient is significant but the sign is opposite to what the trade off theory suggests means the result showed a positive relationship.

14

CAPITAL STRUCTURE

6.0

VOLATILITY

Leverage increases the volatility of the net profit. Higher volatility of earnings increases the probability of financial distress, since firms may not be able to fulfill their debt servicing commitments. Thus, firm’s debt capacity decreases with increases in earnings volatility leading to an expected inverse relation with leverage (Rataporn Deesomsak, 2004). On the research by Myers (1977), the importance of the type underinvestment problem increases with the volatility of the firm’s cash flow.

Besides that, based on the study by DeAngelo and Masulis (1980), the two issues here will be argue that are, for firms which have variability in their earnings, investors will have little ability to accurately forecast future earnings based on publicly available information. The market will see the firm as a ‘lemon’ and demand a premium to provide debt. This drives up the cost of debt. The other one is, to lower the chance of issuing

new risky equity or being unable to realize profitable investments when cash flows are low, firms with more volatile cash flows tend to keep low leverage. Due to that, according to the pecking order model, it predicts a negative relationship between leverage and the volatility of the firm’s cash flow.

Besides that, the trade off model allows the same prediction, but the reasoning is slightly different. More volatile cash flows increase the probability of default, implying that a negative relationship between leverage and volatility of cash flows.

15

CAPITAL STRUCTURE

However, in contrast, firms with stable cash flows should suffer from overinvestment problems. Based on the research by Easterbrook and Jensen (1986), these firms supposedly have more leverage, which further strengthens the notion of a negative relationship between leverage and volatility.

Furthermore, based on the study by Wolfgang Drobetz and Roger Fix (2003), had found in their research that the relationships between leverage and volatility is negative. This result also support both the trade off theory (more volatile cash flows increase the probability of default) and the pecking order theory (issuing equity is more costly for firms with volatile cash flows).

16

CAPITAL STRUCTURE

3.0 3.1

RESEARCH METHODOLOGY THEORETICAL FRAMEWORK

Theoretical framework is the network on how these variables are associated with each other. It consists of dependent and independent variables that are believed to have relationships with the research topic. The dependent variable is the leverage, while the independent variables are profitability, growth, size, tangibility, non debt tax shield and volatility.

The dependent variable can be defined as the phenomenon or characteristics hypothesized to be the outcome, effect, consequent or output of some input variables. Its occurrence depends on some other variables, which usually has come before the dependent variables. The purpose of this variable is to identify the output or presumed effect of one or more independent variables.

Independent variables can be defined as the characteristics hypothesized to be the input previous variable. It is assumed to an effect the dependent variable and is manipulated, measured or selected in order to measure the outcome of dependent variable.

17

CAPITAL STRUCTURE

Profitability

Growth

Size Leverage Tangibility

Non Debt Tax Shields

Volatility

INDEPENDENT VARIABLES

DEPENDENT VARIABLE

18

CAPITAL STRUCTURE

3.2

HYPOTHESES

Hypothesis 1 Trade Off Theory H0: There is a negative relationship between profitability and leverage. H1: There is a positive relationship between profitability and leverage. Pecking Order Theory H0: There is a positive relationship between profitability and leverage. H1: There is a negative relationship between profitability and leverage.

Hypothesis 2 Trade Off Theory H0: There is a positive relationship between growth and leverage. H1: There is a negative relationship between growth and leverage. Pecking Order Theory H0: There is a negative relationship between growth and leverage. H1: There is a positive relationship between growth and leverage.

19

CAPITAL STRUCTURE

Agency Cost Theory H0: There is a negative relationship between growth and leverage. H1: There is a positive relationship between growth and leverage

Hypothesis 3 Trade Off Theory H0: There is a negative relationship between size and leverage. H1: There is a positive relationship between size and leverage.

Pecking Order Theory H0: There is a positive relationship between size and leverage. H1: There is a negative relationship between size and leverage

Agency Cost Theory H0: There is a negative relationship between size and leverage. H1: There is a positive relationship between size and leverage

20

CAPITAL STRUCTURE

Hypothesis 4 Trade Off Theory H0: There is a negative relationship between tangibility and leverage. H1: There is a positive relationship between tangibility and leverage.

Agency Cost Theory H0: There is a positive relationship between tangibility and leverage. H1: There is a negative relationship between tangibility and leverage

Hypothesis 5 Trade Off Theory H0: There is a positive relationship between non debt tax shields and leverage. H1: There is a negative relationship between non debt tax shields and leverage

21

CAPITAL STRUCTURE

Hypothesis 6 Trade Off Theory H0: There is a positive relationship between volatility and leverage. H1: There is a negative relationship between non volatility and leverage

Pecking Order Theory H0: There is a positive relationship between volatility and leverage. H1: There is a negative relationship between volatility and leverage

22

CAPITAL STRUCTURE

3.3

EXPLANATORY VARIABLES

The explanatory variables consist of those that have commonly been documented in the literature to affect the firm leverage. In this study, there are consists six independent variables and defined as follows:

1)

Profitability (PROF) The measurement of profitability is by using the ratio of operating income over total assets (ROA).

2)

Growth (GROW) The measurement of growth opportunities is using ratio of book to market equity.

3)

Size (SIZE) To test the effect of firm size on the optimal debt level, the natural logarithm of net sales had been used as a measurement.

4)

Tangibility (TANG) That is defined as the ratio of fixed assets to total assets for empirical tests.

5)

Non Debt Tax Shield (NDTS) For empirical measurement, by using the total depreciation from the firm’s profit and loss account divided by total assets.

6)

Volatility (VOLA) To test the volatility, the measurement is by using average value of the firm’s total assets over time. 23

CAPITAL STRUCTURE

3.4

RESEARCH DESIGN

3.4.1 INTRODUCTION
This chapter will discuss the procedure and methodology used for the purpose of this research. The procedure for collecting and method in an attempt of analyzing data which have relationship between dependent variable (leverage) and the independent variables (profitability, growth, size, tangibility, non debt tax shield and volatility). The discussion will provide in depth understanding on the relationship of variables. The study is covering the period of 10 years from year 1998 until 2007 related to the evidence by using data of companies listed on the Bursa Malaysia.

3.4.2 DATA COLLECTION
The data and information obtained regarding to this study are from secondary data. All data is gathered from the year 1998 until 2007.The information sources are from data stream, journals, books, magazines, newspapers and internet. All these sources were collected from Bursa Malaysia library, UiTM library, UUM library, USM library and Annual Report of various companies listed on the Bursa Malaysia from year 1998 until 2007.

24

CAPITAL STRUCTURE

3.4.3 MULTIPLE REGRESSION ANALYSIS
A statistical technique will be used to attempt and establish a functional relationship between the dependent and independent variables. For this study, only four statistical techniques have been used in order to test the data. The techniques are Multiple Regression Equation that is consists of T- statistic, F-statistic and R square. In using this regression, the estimated regression model based on the some selected variables should be developed.

General Form of Equation

LEVERAGE = f (PROF, GROW, SIZE, TANG, NDTS, VOLA)

Specific Form of Equation

X = a + β1 X1 + β2 X2 + β3 X3 + β4 X4 + β5 X5 + β6 X6 + e

25

CAPITAL STRUCTURE

LEVERAGE = a + β1 PROF+ β2 GROW + β3 SIZE + β4 TANG + β5 NDTS + β6 VOLA + e

Where, LEV a = Leverage = Constant

β1, β2, β3, β4, β5, β6 = Regression Coefficient PROF GROW SIZE TANG NDTS VOLA e = Profitability = Growth = Size = Tangibility = Non Debt Tax Shield = Volatility = Error term

26

CAPITAL STRUCTURE

3.4.4

COEFFICIENT OF DETERMINATION (R²)

R2 measures the proportion of the total variation or dispersion in the dependent variable that is explained by regression equation. Therefore, R2 informs us about how good the line is best fit and also measures the percentage of a change in the dependent variable that can be measured or explained by the change in the dependent variables. The value of the R2 is range from 0 -1. Coefficient of determination can be divided into three main situations:

If R² = 0  This means none of the change in the dependent variable can be measured by the change in the independent variables.  The estimated equation is useless ( wrong choice of variables)  The equation has no explanatory power. If R² =1  This means 100% of the change in the dependent variable can be explained by the change in the independent variables  The equation has full explanatory power If R² = 0.85  85% of the change in the dependent variable can be explained by the change in the independent variables. Normally the higher the value of coefficient of determination, the higher the explanatory power of the estimated equation and more accurate for forecasting purposes.

27

CAPITAL STRUCTURE

3.4.5 HYPOTHESES TESTING
T- Statistic T- Stat is used to determine whether there is a significant relationship between the dependent and each of the independent variable. If the calculated t stat is greater than critical t value, independent variable is significant to dependent variable at 95% confidence level. However if the t-stat is less than critical t value the result is vice versa. It can be said that the variable is not important and ought to be replaced.

Interpretation of T- Statistic According to the t-distribution table,

T-stat =

Value of coefficient Standard error of coefficient

Computed T- value > Critical F- value, reject Hο Computed T- value < Critical F- value, accept Hο

28

CAPITAL STRUCTURE

F – Statistic

F – Test is used to test the hypothesis that the variation in the independent variable explained a significant portion of the variation in the dependent variable in the overall model.

F – Test can be calculated as follows;

F=

Explained variation / (k-1) Unexplained variation / (n-k)

Where; F k n = Critical value = No. of Independent Variables = No. of Observation

29

CAPITAL STRUCTURE

To conduct test

 The calculated F value must be compared with the critical value from the tabled F value  If the calculated F value is higher than the tabled value, there is a significant relationship between the independent variables and the dependent variable.  Therefore the overall model is said to be significant.

The computed F-value will be compared with F distribution table and the result will be determined by:

Computed F-value > Critical F-value, reject Hο Computed F-value < Critical F-value, accept Hο

30

CAPITAL STRUCTURE

RESEARCH SCHEDULE

WEEK
1 2 3 4-5 6 7 8 9 10 11 - 14

TASK
Collection of information for research Discussion with supervisor about the specification draft Develop a detailed specification for the design. Create a work schedule. Design proposal. Discuss with supervisor regarding the proposal. Proposal correction and amendment. Complete design proposal. Finding the data. Hypotheses testing. Work on thesis.

RESEARCH BUDGET

31

CAPITAL STRUCTURE

NO
1) Traveling Costs

ITEM
 Transportation  Accommodation

COST (RM)
300 200

2)

Stationary  Papers  Ink printer  Photocopying 150 300 150 600 300

3) 4)

Books and Journals Software

TOTAL

2000

REFERENCES

32

CAPITAL STRUCTURE

Ang, J., J. Chua, and McConnell (1982). ‘The Administrative Costs of Corporate Bankruptcy: A Note, Journal of Finance, Vol. 37, pp. 219-226. Booth, A., V. Aivazian, A. Demirguc Kunt, and V. Maksimovic (2001). ‘Capital Structure in Developing Countries. The Journal of Finance, Vol.56, pp. 87-130 Chingfu Chang, Alice C. Lee and Cheng F. Lee (2008). ‘Determinants of Capital Structure Choice: A Structural Equation Modeling Approach. DeAngelo, A., and R. Masulis (1980). ‘Optimal Capital Structure under Corporate and Personal Taxation, Journal of Financial Economics Vol. 8, pp.3-29.

Easterbrook, F. (1984). Two Agency Cost Explanations of Dividends, American Economic Review Vol.74, pp. 650-659.

Fama, E., and K. French (2000). ‘Testing Tradeoff and Pecking Order Predictions about Dividends and Debt’, working paper, University of Chicago and Sloan School of Management (MIT).

Galai, D., and R. Masulis (1976). The Option Pricing Model and the Risk Factor of Stock, Journal of Financial Economics Vol. 3, pp. 631-644.

Gardner, J., and C. Trzcinka (1992). ‘All-Equity Firms and the Balancing Theory of Capital Structure, Journal of Financial Research Vol.15, pp. 77-90.

Grossman, S., and O. Hart (1982). ‘Corporate Financial Structure and Managerial Incentives, in: McCall, J. (ed.)’, The Economics of Information and Uncertainty, 33

CAPITAL STRUCTURE

University of Chicago Press. Harris M. and A. Raviv (1990). ‘Capital Structure and the Informational Role of Debt’, Journal of Finance Vol. 45 Imen Bouallegui (2004). ‘The Dynamics of Capital Structure: Panel Data Analysis: Evidence From New High Tech German Firms

Jensen, M. (1986). ‘Agency Cost of Free Cash Flows, Corporate Finance and Takeovers’, American Economic Review Vol. 76, pp.323-339.

Jensen, M., and W.Meckling (1976). ‘Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure’, Journal of Financial Economics Vol.3, pp.305-360

Jensen, M., D. Solberg, and T. Zorn (1992). ‘Simultaneous Determination of Insider Ownership, Debt and Dividend Policies’, Journal of Financial and Quantitative Analysis Vol. 27, pp. 247-261.

Modigliani F. and M. Miller (1958). ‘The Cost of Capital, Corporation Finance and the Theory of Investment’, American Economic Review, Vol.48

Murray Z. Frank and Vidhan K. Goyal (2004). ‘Capital Structure Decisions: Which Factors are Reliably Important? Myers S. (1977). ‘The Determinants of Corporate Borrowing, Journal of Finance, Vol.32

34

CAPITAL STRUCTURE

Myers, S., and N. Majluf (1984). ‘Corporate Financing and Investment Decisions When Firms Have Information Investors Do Not Have, Journal of Financial Economics Vol.13, pp. 187-222.

Moore, W. (1986). ‘Asset Composition, bankruptcy Costs and the Firm’s Choice of Capital Structure’, Quarterly Review of Economics and Business Vol.26, pp. 51-61.

Rajan, R., and L. Zingales, 1995, What Do We Know about Capital Structure? Some Evidence from International Data’, Journal of Finance Vol. 50, pp. 1421-1460.

Rataporn Deesomask, Krishna Paudyal and Gioia Pescetto (2004), ‘The determinants of capital structure: Evidence from the Asia Pacific Region.

Ross, S. (1977). ‘The Determination of Financial Structure: The Incentive Signalling Approach, Bell Journal of Economics Vol.8, pp. 23-40.

Ross, S. (1985). ‘Debt and Taxes and Uncertainty, Journal of Finance Vol. 40, pp. 637657.

Scott, J (1977). ‘Bankruptcy, Secured Debt and Optimal Capital Structure, Journal of Finance Vol. 32, pp. 1-19.

35

CAPITAL STRUCTURE

Shenoy, C., and P. Koch (1996). ‘The Firm’s Leverage-Cash Flow Relationship, Journal of Empirical Finance Vol. 2, pp. 307-331. Titman, S. (1984). ‘The Effects of Capital Structure on a Firm’s Liquidation Decision, Journal of Financial Economics Vol.13, pp. 137-151. Titman S. and R. Wessels (1988). ‘The Determinants of Capital Structure Choice, Journal of Finance, Vol.43, pp. 1988. Warner, J. (1977). ‘Bankruptcy Costs: Some Evidence, Journal of Finance, Vol. 32, pp. 337-347. Wolfgang Drobetz and Roger Fix (2003). ‘What are the determinants of the capital structure? Some evidence for Switzerland.

36

Master your semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master your semester with Scribd & The New York Times

Cancel anytime.